10 Bankruptcy

10.1 Introduction

gives the Official Trustee the right to undertake an investigation of the debtor's estate and to distribute the assets fairly among the creditors;

enables the bankrupt to be released from the burden of his or her debts, to be rehabilitated and, after discharge from bankruptcy, to permit him or her to start afresh;

protects the interests of the general community and to maintain a general morality within the community.

The legal system provides a variety of means by which a creditor can enforce judgement. This includes the securing of the assistance of the Sheriff in seizing objects in which the judgement debtor has an interest and selling them in order to satisfy the judgement. The sale is conducted under what is known as a writ of fieri facias. If the debt is over a certain prescribed amount, the Sheriff may levy and sell the right, title and interest in a debtor's property.

The DSH Act is the only legislation that overrides the operation of a judgement order.

10.2 DSH Legislation

Bankruptcy of purchaser or borrower

Section 45A (1)Except with the approval of the Secretary, the estate or interest of a purchaser or borrower in any land, land and dwelling-house or right of residence in a retirement village that is the subject of a contract of sale, or of a mortgage or other security securing a Corporation advance or a subsidised advance:

(a)shall not be taken from the purchaser or borrower under theBankruptcy Act 1966; and

(b)shall not be sold in satisfaction of a judgment debt, otherwise than by a credit provider or another mortgagee in the exercise of powers under a contract of sale, or a mortgage or other security.

Section 45A (2)Where 2 persons who are spouses or de facto partners of each other are joint purchasers or borrowers in relation to land, land and a dwelling-house or a right or residence in a retirement village, the Secretary may give an approval under subsection (1) in relation to the estate or interest of both of them if either of them becomes bankrupt or incurs a judgment debt.

Certificate of entitlement: transfer of property subject to specified portfolio asset or advance

Section 22 (6)Subject to this section but in spite of any other provision of this Act, where land, or land and a dwelling-house, has been transferred to a transferee who is not an eligible person, section 45A does not apply to the transferee's interest in the land, or land and dwelling-house.

10.3 Policy

10.3.1 General Principles

Section 45A of the Act provides that the estate or interest of a purchaser or borrower in a property which is secured by a Corporation advance or a subsidised advance shall not be taken from him under theBankruptcy Act 1966or sold in satisfaction of a judgement debt (other than a mortgage) except with the approval of the Secretary. In accordance with ss.22(6), this protection does not extend to ineligible persons to whom an advance was transferred.

It is the general policy not to proceed with any action or proposal which would result in the client losing his right, title or interest in the property and to refuse consent to a creditor to levy execution against the property while the applicant is complying with the requirements of the Act. Departures from the policy will normally be made only in exceptional circumstances.

Consent will normally not be given to applications by a judgement creditor to levy execution against the property or to proceed with any action or proposal which would result in the borrower losing his right, title or interest in his or her property or being dispossessed therefrom while he or she is complying with the requirements of the Act and any mortgage. Where a Delegate considers that there are exceptional circumstances which justify the exercising of the powers of s.45A of the Act, details of the case may be referred to NO through the NPC Manager for consideration in accordance with GO 10.3.2.

In deciding whether exceptional circumstances exist, Delegates should attempt to distinguish those debts that have been incurred in the normal course of daily living and the maintenance of the eligible person and his/her family from those which have been incurred in the course of dealing with other members of the community for the purpose of engaging in commercial activities.

In the event that a decision is taken to give approval under Section 45A, Delegates are reminded that the client would be able to apply for a further subsidised advance on another property under the portability provisions which apply.

10.3.2 Action to be taken where a Client has become a Bankrupt or where S45A approval is sought by a Creditor

When information is received that a client has become bankrupt, before advice is given to the Bankrupt, Official Receiver or Trustee in Bankruptcy as to whether the Secretary will exercise his powers under s.45A, the Official Receiver or Trustee will be requested to submit a statement of assets and liabilities and, in the case of sequestration proceedings, a report on the Bankrupt's conduct and affairs.

Where, after consideration of the statement of assets and liabilities and report on the Bankrupt's conduct and affairs, the Delegate is satisfied that there are no exceptional circumstances, the parties involved may be advised that the Secretary does not propose to exercise his powers under s.45A. It is important at this stage to notify both our client and Westpac that the provisions of Section 45A will no longer apply once the DSH loan is discharged. [Administrative Framework and Decision Making GO 10.3.3 below also refers.]

The same general principles are to apply when unsecured creditors are seeking approval under s.45A to complete recovery action.

In any case where the Delegate considers that there are grounds for exercising the powers under s.45A, the statement of assets and liabilities and report on the client's conduct and affairs will be submitted to the Administration Manager (DHOAS)for decision together with the following particulars:

location of property;

amount of assistance (including additional assistance);

estimated value of property;

existing liability;

whether the client or his/her dependants are in occupation;

the manner in which the client has complied with the loan conditions and details of any arrears of repayments or rates;

general comments by Delegate and/or NPC Manager.

10.3.3 Discharge of Liability on Loans by a Bankrupt

In the majority of cases DSH is unaware that a loan is being discharged until after it had taken place. However, in any case where DSH is aware that a borrower, whose estate has been sequestrated, wishes to discharge his liability, the borrower will be informed of the provisions of s.45A and that if the liability is discharged the provisions of s.45A will no longer apply.